Whirlpool Europe Case Study

The benefit improvement analysis is really comprehensive to include also internal changes such as employee elimination and related savings. Although they all seem reasonable, do have doubt about the cost saving on warehouse. Based on my calculation, referring to Exhibit 3 – second bottom line, the change of working capital is not that considerable due to the increase of sales volume. Thus, the estimation on cost saving on warehouse might be a little bit aggressive in my point of view. Since have no inside information, I would accept all the estimations and assumptions provided by the case.

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The after-tax cash flows for the proposed ERP investment from 1999 through 2007 is shown in Exhibit 1 . Detailed calculations are included in Exhibit 2 – 4. Followings are some calculation process: All expenses that are depreciable are included in Exhibit 2. They are: Software Licenses, Capital Expenditures, and Licenses Maintenance. I included Licenses Maintenance expenses as capital expenditure in the rationale that these are the expenses needed to keep Software Licenses works, and does contribute to future operations and create economic value to the company.

Depreciation and amortization schedules for tax and reporting purpose are assumed to be same, which is 5- year-straight-line method. At the bottom of Exhibit 2, Total Capital Expenditures and Total Depreciation for ERR project is calculated for each following years till 2007. For licenses fees after 2003, the amortization life is adjusted to the remaining life to ERP project, because I believe the terminal value should not be included in this valuation.

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Detail reasons will be shown in following parts. All equipment was assumed to have no residual value at the end of 2007. All operational cash flows are included in Exhibit 3.

The bottom woo lines are the sum of effects on Gross Profit and Working Capital for all four branches. Since the project implementations start in different years, Working Capital Changes and Gross Profit changes are calculated separately in Exhibit-AD. Medium calculations are set in Italic. All cash flows in Exhibit 3 other than change in Working Capital and Gross Profit are not depreciable or amortization and are tax-deductible in the years they were recognized. Expenditure and benefits in Exhibit 2 and Exhibit 3 are added together through the FCC calculation to get the cash flows for ERP project.

In Exhibit , effects of ERP on working capital and gross profit are calculated, and then added to together in Exhibit 3. Data for base year, before 1999, is calculated based on figures for 1997. Turn oversee = 365 / IDS DSL = DISCUSS – 12*accumulated process of ERR (%) CLC % from Case Exhibits Same rule applies to calculation of Units Sold Units Sold = Units Coldness (1+25%(accumulated process of ERP (%)) Profit Margin is calculated by adding the % improvement from Case Exhibit 5 to Profit Margin in 1997. At last, Ending Inventory is calculated based on new turnover and Units Sold, based on the assumption that COGS per unit is enhanced.

Since I believe the project will be replaced at the end of 2007, I restored the working capital at the end of 2007 to previous level. Would not recommend including a terminal value in calculation. The useful life is limited and the case did not mention anything about the revolving of the project. And in reality, the technical change is really fast in real world. The ERP system can be out of date and not able to provide efficiency improvement when time goes by. And in future operation, the change of strategy can also require a new system. Based on my calculation and the assumptions from the case text, I would commend this project.